The Office for National Statistics (ONS) has confirmed that inflation has fallen from 3.2% in March to 2.3% in April. This is a significant drop and the rate is at its lowest since July 2021. It is still, however, slightly above the Bank of England’s target of 2%.
What does this drop in inflation in the UK mean?
The current rate of 2.3% is welcome news when you look back over the last couple of years, despite still being above the 2% target. In October 2022, inflation hit a 41-year high of 11.1%. The rate has been steadily decreasing since then as a result of continuous interest rate increases to counteract it. The Bank of England’s base rate reached 5.25% in August 2023 and has remained there since then. This has been to ensure that inflation continues to drop until it’s under control.
The Bank of England had expected the announcement to state that inflation had hit its 2% target. Therefore, while the sharp drop to 2.3% is good news, it’s not as low as was hoped. As such, it’s thought this may delay a cut in the interest rate. This had been expected to occur in June but is now likely to be delayed until later in the summer.
It’s important to remember that inflation is the gauge of the rate at which prices have risen over the previous year. Therefore, although the rate has dropped, it doesn’t mean that prices will drop as a result. Instead, it shows that prices are still rising but at a slower rate. The main reason for this latest reduction in inflation is due to energy prices, which fell by 27.1% in the year to April.
How does the inflation rate affect mortgages?
As the inflation rate of 2.3% isn’t as low as had been predicted and a cut in the interest rate is likely to be delayed, lenders may now be unwilling to reduce their mortgage rates for new fixed-rate deals. Approximately 1.6 million UK households have fixed-rate deals ending in 2024. This will, therefore, be disappointing news for those with deals ending in the very near future.
If your mortgage deal is coming to an end shortly or you’re considering switching your existing deal to a new one, get in touch with us on 01322 907 000. We have an unrestricted range of first and second charge lenders. This means that we can search across the entire market for the best deal to suit your needs.
This includes deals that are only offered by lenders via brokers rather than to the general public. As such, we have the opportunity to find a better fixed-rate product than you’d be able to find if searching yourself, with access to exclusive deals offered by lenders.